SiTime Corporation Q1 2023 Earnings Call
Average selling prices are asp's reflect <unk> value to the customer <unk>.
Despite low revenues and better availability from courts competitors are asp's have remained stable.
Now I'd like to give some color on 2024.
We expect 2024 to be a solid recovery year.
[noise] expecting the business that was already in production to get back to levels closer to be real demand one customer and channel imagery is consumed by the end of 2023.
Additionally, our continued design when momentum will translate to new revenue in 2024.
For example in communications Enterprise, we forecast that 65% of 2024 do I have any opportunities are already in production right now.
From 22 to 27, Yeah, I is expected to drive significant growth and high speed Ethernet and we are well positioned here.
The situation is similar in aerospace defense.
Forecast at 60% offer expected 2024 revenue will come from opportunities in production today.
Here 10 applications driver revenue and we are shipping to seven out of the top eight U S defense contractors wherever we have an average of 50 design wins for a customer.
An automotive we forecast at 70% off are expected 2024 revenue in this segment will come from opportunities that are already in the early stages of production primarily in eight S.
Which is automated driving assistance systems.
In this segment, we are engaged with all U S based pure play electric vehicle customers that are shipping in volume.
In China with engaged with most major E V manufacturers and their <unk>.
In conclusion design wins continue to grow as does our Sam.
Connection with customers as strong as evidenced by a stable ESPN sole-source business as well as the fact that we did not lose any meaningful business to our competitors.
Inventory is consumed in demand returns, we expect to be in a great position to take advantage and resume growth.
We continue to remain very confident sidearms future success.
<unk>.
Thanks for Jeff and good afternoon, everyone. This is art Chadwick.
Today I'll discuss first quarter 2000 twenty-three results and then provide some guidance on the second quarter.
I will focus my discussion on non-GAAP financial results and refer you to today's press release for a detailed description of our GAAP results as well as the reconciliation of GAAP to non-GAAP results.
Revenue in the first quarter was $38.3 million down 37% sequentially.
Two thirds of that decline, which caused by much lower sales two are historically largest customer as they work through excess inventory.
Most of the rest of the decline was due to lower sales to our calms and enterprise customers as they to work through inventory.
Sales into our mobile I O T and consumer segment, where $8.8 million or 23% of sales down from 24.7 million into four due primarily to lower sales to our historically largest customer where sales were $1.2 million down from $15.5 million into.
Four.
Excluding sales to that historically largest customer sales into this segment for 7.6 million or 20% of sales.
Sales into our industrial automotive and aerospace segment, where $18.7 million or 49% of sales down from $20.3 million into for.
Sales into our calms and enterprise segment, where $10.9 million or 28% of sales down from 15.8 in Q4.
Q1, non-GAAP gross margins, where 61.8% down slightly from Q4, due primarily to the lower revenue.
Q, what non-GAAP operating expenses for $27.3 million down slightly from Q4, as we managed to certain discretionary and other expenses.
Expenses were 16.4 million in R&D and $10.9 million in SG&A.
Or non-GAAP operating loss was $3.6 million.
Interest income with $5.6 million from interest earned on short term tebow investments.
non-GAAP net income was $2 million or nine cents per share.
Cost receivable, where $21.5 million with Dsos, a 50 days down from 41.2 million.
So it was a 61 days in Q4.
Inventory at the end of the quarter was $60 million up from 57.7 million last quarter.
As we continued to make strategic wafer purchases.
During the quarter, we generated seven and a half million dollars in cash from operations.
Reinvest at $2.3 million in capital purchases and.
And ended the quarter with $576 million in cash cash equivalents and short term investments.
I'd now like to provide some financial guidance for the second quarter of 2023.
As we just mentioned the macro environment remains challenging.
Demand has continued to soften and a number of markets and most recently in the data center.
In addition channel inventory, which is inventory of both distributors and that our customers contract manufacturers is historically high.
And customers are not consuming that inventory as quickly as expected.
Inventory levels will likely remain high well into the second half of this year.
And this is have any significant impact on current revenue.
As a result, we now believe the revenue cycle will be deeper and more prolonged than we had previously thought.
With a Q1 would be the low quarter for the year, but it now looks like Q2 will likely be the low quarter.
Revenue in the second quarter is now expected to be.
Between $25 million and $28 million.
Down from Q1, due primarily to lower sales comes in enterprise and auto markets.
Those customers continue to work through inventory.
Sales too are historically largest customer will also continue to be well below their consumption rate.
They'll likely higher than in Q1.
Gross margins are expected to be between 56 and 58%.
Down from Q1 due to the lower sales.
As well as to a change in mix.
Operating expenses are expected to be between 27, and a half and $28 million.
Interest income should be at least $6 million.
Sure Count will be approximately 22 million shares.
As a result, we expect you to non-GAAP net income will be a loss of between 25 cents and 35 cents per share.
So it's not clear when and demand will pick up we do believe that one's our customers work through excess inventory.
Sales will improve.
The visibility is not great. We believe sales in Q3 will be higher than in Q2.
Q for should be nicely higher than that is sales to our historically largest customer and others should be back to a more normalised level.
I would like to conclude my remarks by saying that even though we're going through a very tough cycle. We firmly believe that a long term growth story is intact.
We continue to aggressively invest in our process and product development.
We have unique and superior technology that address is large and growing markets.
Design will and productivity continues to be strong and that coupled with new product introductions and an expanding Sam should lead to continued longterm growth.
Note I'd like to <unk> and the call back to the operator for questions and answers. Thank you.
Certainly as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again, please limit yourself to one question and a follow up.
While we can possibly Q&A roster.
Moment for our first question.
And our first question will come from.
Nicholas N Company your line is open.
Yes. Thank you my my first question is if if you have a more general feel for the the the real rate of consumption because I mean, obviously, you know 27 and a half million at the mid point is clearly impacted by the inventory digestion.
And you know I mean, you had a peak along with eight Emilia <unk> 27, and a half. So do you have any sense for what the real rate of consumption is just just so we kind of know what the what the revenues will be once the inventory has been digested.
So that's that's a great question of course.
It is not easy to quantify it but I will put this out there we look at how much inventory there is in the channel again, both of the distributors and now.
The inventory that's being held at the sub contract manufacturers and by our analysis, we think there's about $30 million worth of inventory out there at the end of Q1.
Above and beyond what we would consider to be normal levels.
So would that mean for the year, assuming that that inventory gets work down by the end of the year and we do believe that it should.
It means it will probably under shipped by somewhere around $30 million this year. So.
So that's.
That's the way we look at it in terms of inventory this in the channel and what that's doing to our current revenue.
No. That's that's great gray color in a question on inventories so they've been up the last two quarters to 60 million last quarter.
Perhaps you could help us feel comfortable with that number.
In light of the revenue decline.
You know whether comments on shall apply for I mean, you didn't mention strategic and we'll tell Ya right. So any anything you can share with us to feel comfortable with that that's $60 million.
Yeah. So if you think back you know a year plus to go with all of the supply constraints. It was difficult to build up any buffer stock in wafers and are Mems wafer is for example can take six to nine months lead time. So it was kind of hand to mouth for a long time, though shortages have ear.
<unk> and we made the conscious decision to build quite sufficient wafer buffer stock. So our wafers come from Bosch for our members wafers and they come from TSMC for our Cmos analog wafers.
Almost all of the increase that we've had in inventory over the last few quarters is wafer stock waivers do not go bad. So these wafers could sit there for many years if necessary I think will consume it will be for that but to answer your question. They do not go bad it's also important.
For us to have sufficient inventory for our customers a number of our customers as we mentioned last year 80 per cent of our sales were sole sourced. So these are large customers that rely on us and it gives them quite a bit of comfort in fact, they've asked us to provide that kind of comfort to them to have that kind of buffer we could go quite an extent.
Time with supply.
Constraints in the market and still be able to support those customers. So this was a very conscious decision to buy those waivers. They will not go bad we lose a little bit of interest because it does absorb some of our cash but as I mentioned, we've got a very strong cash balance $576 million. So we have made.
The decision that this was the right strategic thing for us to do.
Perfect I'll I'll go back and <unk>. Thanks.
Great. Thanks story.
And one moment for our next question.
And our next question will come from it's easy to sell that for our capital. Your line is open.
<unk>. So can you just help us understand what the quarter looks like men linearity perspective and into April or is it a sharp falloff was it just kinda lower recovery than you expect to just the shape that will be helpful.
Yeah, I wouldn't say that it it it it added.
A step function decline, it's been slow for awhile now for the last few months.
Across a few of our market says as <unk> talked about as I talked about in our script.
So yeah.
Yeah, I think I would add that tsuji that bookings have been disappointingly low.
All through this past quarter, perhaps not in January , but starting and they're out in the middle of February onwards, they have been generally low and weak and not very healthy and so we've we've been looking at this.
For awhile and what we conclude of course is that.
Given that we have not lost any business to competitors given that we have not lost any design wins given that our customers are forecasting bigger numbers.
We think that those should recover when their business recovers in the Meanwhile, a couple of specific businesses.
I called out the Chinese electric vehicle car companies in this day decline they they put out information that they have declined quite significantly in data centers, we've seen that in other semiconductor companies that supply to that to that market as well that sort of weakness.
One of the one of the interesting things is we see other semiconductor companies that ship to what I'll call legacy product legacy cars like internal combustion cars those companies seem to be doing okay. In the automotive space, but given that we are heavily folk.
A new business on electric vehicles on <unk> systems, which are more emerging we're not seeing that because of course, we don't have a big legacy business an automotive.
<unk> I'll just add a few comments sure you know last year clearly our customers over bought so there's too much inventory out there.
In the meantime demand as often we've talked about that over the last couple of quarters, but it continues.
And I look at say our top five customers for example, our top five customers last year, they're sitting here and saying look I have enough inventory my demand is less than I thought I, just don't need to buy anything right now and that's what we're seeing in queue to you know our top five customers are behind very very little at least compared to what they were buying.
And that's driving to a decline in sales and Q2 as <unk> mentioned are designed when activity is stronger than ever. It was up you know nicely Q1 over Q for our quote activity is very strong.
The longterm market that we're addressing we feel very confident that they will continue to grow our new product introductions are on track so longer term were as confident as ever but short term. Our customers are are basically shaking their head and saying I just don't need any product right now and that's what we need to work through.
Okay that extra gesture that's very helpful color. There. My second question is on the gross margin the drop here, what what are the drivers here and and what what are the factors that get it back.
Buffy X D. As it just just give us some yeah.
Yeah No great question. So in Q2 I guided the gross margin is non-GAAP gross margins are between 56 and 58%. So that's down from our 61 eight in Q1.
Two factors that are driving that and I mentioned briefly one is just top line revenue. We've got you know.
We've talked about this many times kind of a fixed manufacturing overhead, it's really a cost of ops groups them depreciation on back and equipment that we own at our <unk> and some other cost of sales that number is relatively fixed so when revenue goes down that becomes a larger percentage of sales and that drive down blended margins and that probably accounts for about <unk>.
Half of the drop between Q1 and my guide for Q2, the other half has to do with mix as I mentioned much of the decline in revenue from Q1, Q2 incomes and enterprise and auto and those are high margin products for us so.
That becomes a lesser percentage of our revenue and then our consumer I O T will be a slightly higher percentage of our revenue. So that makes moves against us in terms of gross margins.
Okay. Thanks, Sir and then and then let me let me add to that going forward as revenue continues to increase in with US. What we expect will happen I mentioned, we thank you three would be better than Q2, Q forced to be better than Q3, and we think 2024 should be nicely better than 2023 in total that manufacturing.
Overhead absorption will improve that will pick up a number of points I think the mix will also improves.
Our whole strategy since the I P O has to be in to develop products that are addressing these higher performance markets.
And that drove a very nice gross margin expansion from our IPO through last year.
Because of the inventory situations that we talked about comes in enterprise sales are down substantially right now, but that should come back and when that comes back to mix should get back to where it was and improve even beyond.
So at this point I think we exit this year gross margins probably closer to 60% just because of the revenue.
I think by 2024, we should at some point during 2024 be able to get back to our gross margins in the mid sixties, that's how we see it right now.
Okay. Thanks.
Thanks for <unk>.
And one moment for our next question.
And our next question will come from coin Bolton.
Your line is open.
Hey, guys, Sir I guess I wanted to come back to your comment about the $30 million of inventory and it probably taking through year and to you know worked at down I guess I'm trying to come back to this you know what's the right level of consumption and if I, just take 30 million spread it over three quarters.
You know you're under shipped by $10 million a quarter, you know kind of feels like you're telling us that that and consumption might be only something like $40 million a quarter that seems a lot lower than I think what we might have discussed a quarter or two where I think you were thinking and consumption might've been closer to 60 to 65. So can you give us.
Any better sense, I mean is 40 million the right number now to be thinking about consumption.
Yeah, So I I don't want to give it.
It's difficult to give a hard number on that clearly there is softness and some of the markets that we're addressing data center is a more recent one a lot of changes you know, they're pulling back on capex that that impacts high performance servers and impacts optical switches a whole variety of things. So my.
Point is demand is down we think that it will come back I think this is a classic cycle and it is hitting us hard I think that's obvious.
But it's.
It's difficult to put a hard number on your question.
Okay Fair Fair enough and then you know I know you guys have talked about a keg or long longer term kicker and sort of the 30, 35% level.
You know you're gonna have a very weak twenty-three as you under ship consumption do you think you come back and are you looking at a 2024 that sort of in line with that 30, 35% longterm cake or do you think you know that as you snap back to consumption do you have an opportunity to potential.
Grow faster than that just given how weak twenty-three as I know you're not dieting out a year, but I was just wondering if you might be able to try to provide us with a framework because you know it feels like the numbers are still moving around a fair amount this late into the inventory cycle.
Yeah, well first of all you know we we've been surprised by this cycle. This is.
Becoming deeper and longer than we had expected. So there has been some surprise there to answer your question longer longer term, we still think that the 30% <unk> is very reasonable and we'd based on the number of new products that we've recently introduced that we're gonna introduce what that does to our Sam expansion.
We do this market segment by market segment, we do we spend a lotta time on this in the company so longer term.
I think that 30% growth rate.
Is defensible hasn't happened, yet, but I think it's a very reasonable number it could be higher than that could be lower than that but I think that's a good baseline.
For next year, I think two things happen, one we get back to shipping at.
Our customers consumption level, so with whatever we ended up shipping this year I think we're gonna under ship, probably somewhere around 30 million less than the consumption based on the fact that we believe there's about 30 million.
Dollars, an inventory above and beyond what would be normal so that would get us to a new <unk> to a baseline and then what's the growth rate in 2024.
I would like to think it's 30%, but you know people were also talking about maybe there's gonna be a recession things are slowing down. So I don't know if that's gonna happen or not I think it might make better sense to have a slightly more conservative expectation on on revenue growth.
You know.
Something less than 30% only because we don't know.
But my point is we can come up with a baseline by adding back the under shipment. This year and then folks can assume on a growth rate from that base to Ah revenue number for 2024 and I think that's that's how we look at it and I think that's the right way to look at it.
To add into that Quinn I would reiterate the element of disappointment.
That we see in the bookings because of demand and we poke at the usual things design weight loss.
<unk>.
Single source going to Multisource declining.
Declining prices.
And so on and we don't see the issues there we see the issues and declined demand and I think it's mirrored in macroeconomic conditions perhaps.
And certainly in a couple of the key markets.
Which are important to us.
And so we definitely psyched the disappointment on the other hand.
Everything that I mentioned in those four things new products for new Sam New design wins at 35% increase single source business, I'm diminished and expanding S fees.
Those are still visible to us and the new business that we are finding in our final and taking it all the way through into design Lynn.
Got it thank you for the additional color.
<unk>.
K as a reminder to ask a question. Please press star one.
One on your telephone.
One moment.
And we have a follow up question from tourists.
[noise] Stifel Nicholas and company your line is open.
Yes. Thank you I had a follow up question on your largest customer.
Obviously, it was very load this quarter as you had projected but it did sound like you expect that customer can be up sequentially. The drink holder. So is it safe to say that the bulk of sort of their inventory overhang is is now you know played out I mean, I do recognize a drink called the public still some link.
During effect there, but it it does directionally feel like you know the the bulk of that overhang is now behind you.
Yeah, I would not say it's played out yet it is plain out as I mentioned, we only they only purchase $1.2 million in Q1 that was down from 15 and a half in queue for so clearly they burn through inventory and Q1, I do expect a sales to them.
Will be up some in Q2, not a lot could be a few million dollars give or take I think they had improved substantially in Q3 and as I mentioned in my comments I think by Q4 there'll be back too, but we would consider to be a normalised run rate like the good news. There is we are still in all the products that we were done.
<unk> into that has not changed they they are essentially their sub contract manufacturers severely over bought over the last few quarters and we have to get through that so it's gonna come back, but it's gonna take a couple of quarters to get back to kind of a full normalised run right.
Very good and my last question.
I think I'm all about some of the longer term trends out there I never addressed you introduced.
A new range so the high precision.
Uhm tummy devices for in call connectivity, just you know, hoping you could elaborate a little bit on that especially you know what we can start to see more material regular contribution from from that products Emily.
Yeah, I think what we're seeing is that these products steak Ah.
About nine months for design wins.
And then another year to rollout in inflation, so continuing into one of the reasons I gave some of the metrics on how we see 2024.
For example in automotive Sir.
70% of the revenue from automotive is already shipping today.
In other words.
That is a level of insight or or outlook. We have on it. So we don't expect that kind of product to have significant impact on the revenue because it's a lot of the stuff that's already in design wins.
And not even designment, that's actually mass production, which is one step out well out of designers.
So I I think it's safe to say that when we put out a new product announcement.
It's generally about a year and a half away from high volume production low volume production, another matter, but high volume production, probably a year and a half.
Very good thank you.
And I'm showing no further questions I would now like to turn the call back to management for closing remarks.
Alright, Thank you operator, well, we Wanna, thank everybody for joining us on the call today, We hope you have a great afternoon, and thank you very much. Thank you bye bye.
And this concludes today's conference. Thank you for your participation you may now disconnect.
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